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Economics of Energy & Environmental Policy
Volume 14, Number 1



Are Credit Rating Agencies Punishing Petrostates for Energy Transition Risks?

Brian Blankenship, Indra Overland, Johannes Urpelainen, and Joonseok Yang

DOI: 10.5547/2160-5890.14.1.bbla
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Abstract:
The energy transition is expected to leave fossil fuel producers with weakened economies and stranded assets, but the time horizon of these effects is uncertain. This article offers a window into these effects by studying the sovereign credit ratings of petrostates. Credit ratings are both forward-­looking indicators of their economic outlook and determinants of petrostates’ ability to raise capital, and may thus already reflect concerns about the energy transition’s anticipated effects. Using data on sovereign credit rating decisions, this article studies changes in petrostate ratings over time. We find some signs that they are declining, but also that this is not primarily the result of systematic downgrades. For the time being, credit rating agencies are instead rewarding petrostates less for high oil prices and punishing them more for low levels of economic diversification. The short-­to-­medium term risk horizon of rating agencies means that future downgrades could come suddenly and steeply.




Do Sustainable Operations through Energy Effectiveness Reduce Cost of Debt in Medium and High-tech Industries? Evidence from an Emerging Economy

Pranith Kumar Roy,*, Kamalika Halder, and Mohd Shadab Danish

DOI: 10.5547/2160-5890.14.1.proy
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Abstract:
Access to low-cost finance is a significant factor influencing firms’ investment decisions in research and development, which is crucial for corporate success. The goal becomes critical when the firm’s sustainability policy channels energy consumption, resulting in optimal capital allocation for new, resource-efficient technologies. Despite its significant relevance in policymaking, there has been little academic study on the potential influence of energy efficiency on enterprises’ cost of debt, particularly in emerging countries such as India. To gain a deeper understanding, this study examines the impact of a firm’s energy efficiency, a strategic step in sustainable operational practices, on the cost of debt for high- and medium-tech firms in India. For this purpose, we conducted a panel data analysis using 7,603 observations classified as high and medium tech from 2010 to 2022, employing two-stage least squares Tobit regression models. The findings show that firms with policies on energy efficiency measures could benefit from lower borrowing costs in their financing decisions. The findings reveal a curvilinear relationship between firms’ energy efficiency and the cost of debt in both the high-tech and medium-tech sectors, suggesting that efficient energy consumption can yield financial advantages beyond a certain point, after which a diminishing effect may occur. However, the findings do not hold when firms are less energy efficient and ownership changes to foreign control. The insights of the study may guide firms in developing countries in formulating their energy policy toward environmental sustainability, designing an effective ownership structure, and allocating resources while reducing financing expenses, thus aligning corporate interests with economic objectives. Financial institutions can also leverage these outcomes when formulating a lending policy that considers firms’ energy efficiency.





 

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